Renting Out A Room: What You Need To Know

Co-author: TJ Ryan
Did you know your spare bedroom could be earning you up to $15,000/year? But before you sign up, you need the right insurance.

Most households in Australia admit that they could do with a little bit of extra cash each year. According to Australia’s largest share accommodation site, Flatmates.com.au, your spare bedroom could be earning you $197/week based on the national average in 2016.

You could earn even more if you had a room to let in Sydney, with demand for share accommodation currently outstripping supply at 59 people to 1 room in Sydney in November 2016 (Flatmates.com.au).

Flatmates.com.au CEO, Thomas Clement, said the competition for share house rooms is being driven up by the high cost of renting in some suburbs and the reality of limited stock in others.

“We usually don’t see this kind of competition for rooms until January – February, which is the peak period for shared accommodation,” said Clement.

Does home insurance cover share housing?

In short, no. If you’re planning to open your home as a share house on sites like Flatmates.com.au, Airbnb, or Stayz, it’s vital that you get the right kind of insurance.

Standard home and contents insurance policies do not cover damage caused by flatmates who are subletting a room or their visitors. Instead, you need landlord insurance or a specialised short-term home and contents insurance policy for Airbnb and Stayz hosts. Thankfully, Canstar’s got your back, as we research and rate both landlord insurance and home and contents insurance on our website:

Compare Landlord Insurance

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Advice for share house landlords renting out a room

Canstar caught up with Flatmates.com.au for a few tips on what to consider before putting up a “to let” sign.

Q: Finding the right flatmate is essential, so how do you choose a flatmate?

A: Our biggest tip for choosing a flatmate is to take your time. Invite potential flatmates over for a room inspection and an informal sit-down chat. Asking them about their habits, lifestyle and work situation will give you a good indication about their suitability for the home.

Believe it or not, most of our users will make their final decision based on gut feeling. Remember that sharing is more about the people than the property, and finding a flatmate will be a little more informal than finding a tenant.

For added security, requests for references from employers and previous landlords are more than acceptable. These should be requested before the viewing.

Related article: How to find the right tenant

Q: Is it a good idea to have a set of “house rules” for a share house?

A: Having a flatmate agreement in place is a great way to make sure everyone is on the same page. It also helps as a reference point should there be any disagreements later on. Along with general rules, the agreement should also include: what bills, if any, are included in the rent; any furniture supplied; the condition of the room; and move out terms.

Day to day rules will vary depending on the occupants of a home, however, they may include things such as: having guests over; if food is shared or not; respect for space and belongings; and cleaning responsibilities.

Q: What are your legal responsibilities as a landlord of a share house?

A: Legal responsibilities change from state to state and will also depend on if the person is subletting a room or are the owner. We recommend anyone considering a flatmate contact their respective tenancy authority to ensure they are aware of their legal responsibilities and rights.

Q: Finally, from your website, what are some of the suburbs that are often quickly snapped up by prospective tenants?

A: We don’t have a requirement from our users to tell us when they have successfully found a flatmate. However, below are Australia’s most shared suburbs of the 12 months to May 2016.

Top 10 share house suburbs in Australia

Rank Postcode Suburb Percentages of dwellings that are shared
1 2008 Chippendale – Darlington 22%
2 3000 Melbourne CBD 19%
2 4000 Brisbane CBD – Springhill 19%
4 2007 Ultimo 18%
5 2009 Pyrmont 17%
5 4067 St Lucia – St Lucia South 17%
7 2026 Bondi – Tamarama 14%
7 3003 West Melbourne 14%
9 3006 Southbank 13%
10 2000 Sydney CBD 12%
Source: Flatmates.com.au, based on the 12 months to May 2016.

Here’s the top 10 for a few states, and what’s interesting is that they have changed over the past few years, with certain suburbs becoming more desirable:

NSW:

  1. Chippendale – Darlington
  2. Ultimo
  3. Pyrmont
  4. Bondi – Tamarama
  5. Sydney CBD
  6. Newtown – Enmore
  7. Bondi Junction
  8. Coogee – South Coogee
  9. Surry Hills – Darlinghurst
  10. Glebe – Forrest Lodge

VIC:

  1. Melbourne CBD
  2. West Melbourne
  3. Southbank
  4. Parkville
  5. Abbotsford
  6. Carlton – Carlton South
  7. North Melbourne
  8. Clayton
  9. Brunswick East
  10. Docklands

QLD:

  1. Brisbane CBD – Spring Hill
  2. St Lucia – St Lucia South
  3. East Brisbane – Kangaroo Point
  4. Milton – Paddington
  5. South Brisbane – West End
  6. Kelvin Grove – Red Hill
  7. Dutton Park – Woolloongabba
  8. New Farm – Teneriffe
  9. Fortitude Valley – Newstead – Bowen Hills
  10. Toowong – Auchenflower

Landlord Insurance vs Home Insurance

What to think about before renting out a room

If you are thinking about renting out a room, there are some tips and traps to be aware of, including the following…

Tips when renting out a room

Look into landlord insurance. No matter how carefully you choose your tenant, accidents and other mishaps can occur. At a minimum, look for a landlord insurance policy that covers you for theft by tenants or guests, malicious damage or vandalism and loss of rent. Find out more about what landlord insurance is here and compare landlord insurance policies using the Canstar website.

Be mindful of security. Does the room you are renting out have a lock with an individual key? Chances are it’s something that a tenant would appreciate. You also might want some lockable cupboards – for both yourself and your tenant – for any valuables.

Do a character check. How do you check if someone has been blacklisted as a tenant? Letting someone live in your home is not a decision to take lightly, so make sure you check the National Tenancy Database before you hand over your keys.

Charge an appropriate rate of rent. Too high and you won’t find a tenant, too low and you’re missing out on income. Browse the other properties available in your area to get a good idea of a reasonable market rate.

Check your landlord rights and responsibilities. Each state has information on the rights and responsibilities of landlords. Click on the relevant state for more information:

Traps of being a share house landlord

You’ll need to pay tax. According to the Australian Tax Office (ATO), if you rent out part of your home – even just one room – the rent that you receive will usually be regarded as assessable income. You’ll need to include it in your tax return and pay tax on it accordingly. When you sell your house down the track, you may also have to pay some capital gains tax (CGT). On the plus side, there are some expenses that will be tax deductible. Visit the ATO website for more information.

Factor in the extra costs. Speaking of expenses, make sure you factor in those extra costs of renting out a room. Having a tenant means additional electricity and gas usage. Is your hot water system large enough to cope with extra people? Is the room being rented adequately furnished? Don’t forget about additional wear and tear on the bedroom and bathroom the tenant uses.

You’ll need to maintain a high standard of care. That wobbly balcony railing or wonky third stair on your staircase might be endearing quirks to you – but they could pose serious safety risks for others. Check your property very carefully to ensure the safety of your tenant and visitors.

Maintain a high standard of cleanliness. Who is going to clean the areas that the tenant uses – you, the tenant, or a cleaner? Differing standards of cleanliness can be a common cause of argument, so make sure cleaning arrangements are agreed from the outset. Hiring a professional cleaner once per month (or fortnight) will reduce your rental profit – and you’ll need insurance – but it might add a lot to your peace of mind.

Have clearly-defined expectations. While you are renting a room and bathroom, make sure you have clearly-defined expectations about the use of the rest of the house (kitchen, laundry, living area, outdoors) from the outset. Sharing a house can encroach on your personal space and agreements on sharing right from the start can help to minimise that.

Compare Landlord Insurance

If you’re in the market for landlord insurance, or considering switching providers, the the table below displays a snapshot of landlord insurance policies on Canstar’s databse with links’ to providers websites. The results shown are based on a house in NSW and are sorted by Star Rating (highest to lowest).

 

Compare Home Insurance with Canstar

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